Who is actually the seller
Legally the homeowner sells, but economically the lender decides. A signed purchase contract is only the beginning of a package that also includes a hardship letter, financials, a listing history, and a net sheet showing what the lender receives after commissions and costs. The lender orders its own valuation, usually a broker price opinion or appraisal, and measures your offer against that number rather than against the balance. When there is a second mortgage, a mortgage insurer, or a securitized investor behind the loan, each has to sign off, and any one of them can hold the file hostage over a few thousand dollars.
The timeline problem
Short sales are slow and unpredictable — weeks at best, many months in bad cases, with files that get reassigned mid-process and documents that expire and must be resubmitted. Meanwhile the foreclosure clock often keeps running in parallel, so approval can arrive after the auction date unless someone actively coordinates a postponement. That combination makes short sales a poor fit for investors who need speed and a reasonable one for those with capital to park, patience to spend, and enough volume that a few dead files do not matter.
What makes a package approvable
A defensible price supported by comparable sales and documented condition, a genuine and clearly stated hardship, a complete file submitted the first time, and a net to the lender that beats what foreclosing and reselling would produce. Padding the file with inflated repair estimates tends to backfire once the valuation comes in. On the seller side, the tax and credit consequences of a forgiven balance and whether the lender can pursue a deficiency depend on state law and individual circumstances, so the homeowner should get advice from an attorney and a tax professional rather than from the buyer.
Deciding whether to pursue one
Treat a short sale as a pipeline item rather than a deal in hand. Tie it up if the price would work, keep your money and attention available for other opportunities while it sits, and never let the sunk cost of a long approval push you into accepting a counter that breaks your numbers. The investors who profit here run several files at once and expect most to fail, which is a very different temperament from the one that suits a fast off-market purchase.
Related terms
- Pre-foreclosure — The window after a borrower defaults and a public notice is filed but before the property sells at auction.
- REO (real estate owned) — Property a lender took back because it did not sell at the foreclosure auction, now held on the institution’s books and usually listed with an agent.
- Title insurance — A one-time-premium policy protecting against defects in a property’s ownership history — forged deeds, missed heirs, unpaid liens, recording errors.
- Escrow — A neutral third party holding money or documents until both sides satisfy the conditions of a deal.